Tools available in financial crisis

When the Federal Reserve cut a key interest rate on Tuesday to its lowest point in history, regulators were acting wisely - even as they were firing nearly the last arrow in their quiver.

The Federal Open Market Committee, the central bank's rate-setting body, assigns a target for the so-called federal funds rate, the amount that banks charge each other on overnight loans. With Tuesday's dramatic move, that target now stands at 0 percent to 0.25 percent. No matter how you slice it, there's not much more cutting in the offing.

On to other moves.

This is a good time to remember that Fed Chairman Ben S. Bernanke is sometimes dubbed "helicopter Ben" after a speech in which he talked of dropping money from a helicopter as a way to combat deflation. (That he was citing comments made years earlier by economist Milton Friedman, as much a free market fundamentalist as anyone, seems to be conveniently forgotten by Bernanke's harshest critics.)

The point that Bernanke was making - as was Friedman before him - is simply that central bankers have at their disposal ammunition other than the control of interest rates.

He was right, of course. We've heard again and again during this crisis that credit markets have frozen because of a "liquidity trap." That's just how economists talk. What they mean, in the simplest terms, is that banks won't lend money even if they have it, and that the Fed's normal methods - such as lowering interest rates - will no longer work to get the economy moving again.

Which is why the Fed accompanied its rate cut with assurances that it will use all tools at its disposal to get credit markets functioning properly once again.

Reading between the lines, regulators were saying this: We may have fired nearly all of our arrows, but when it comes to battling the current crisis, we've got much more than just arrows in our store of munitions.